Datadog Stock Compensation Planning
ISOs, or incentive stock options, are a type of equity grant that gives you the permission, or option, to buy shares of Datadog stock at a specific price. We find that many early Datadog employees will have ISOs with very low strike prices, which makes careful tax planning essential.
You must first wait for your ISOs to vest before exercising them. Once exercised, you are free to sell them as long as you are in an open trading window. If you sell them at least two years from your grant starting and one year from exercising your options, you will get favorable tax treatment and pay the long-term capital gains rate on the sale. Otherwise, you will owe ordinary income tax on a portion of the sale.
RSUs, or restricted stock units, are a type of equity grant that gives you shares of Datadog once you have met the time-based vesting requirement at no cost. Your grant is based on a fixed number of shares on a pre-determined date. Generally, we have seen Datadog offer RSU grants that span a four-year period with quarterly vesting. Upon vesting, you will owe ordinary income tax on the entire amount based on the current share price. Your cost basis will also be the current share price at vesting. As with regular stock, you can decide to hold your stock and wait at least one year to obtain favorable tax treatment.
ESPP, or employee stock purchase plan, is a type of savings plan that allows you to buy Datadog stock at a discounted price. For six months, you defer after-tax money from your paycheck into the ESPP. At the end of the six months, Datadog will purchase stock based on the lower price of the start and end date of the six months with a 15% discount. This is known as the look-back provision. You will then receive these Datadog shares into your account.
Datadog has two ESPP offering periods a year. The first one is from the middle of November to the middle of May. The second one runs from the middle of May to the middle of November.
You only pay tax on the growth and the discount for stock obtained from ESPP. Furthermore, you are only taxed once you sell the shares, not when you receive the shares. You can also receive favorable tax treatment by waiting two years from the grant date and one year from receiving the shares.